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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Day 5 Visit to a government facility to do an energy audit Course review and comprehensive examination Presentation of certificates of participation Closing

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Demand Side Management Actions carried out by the utility on the customer’s premises that help manage the customer’s electrical usage –To modify energy use patterns including electricity demand timing or amount of demand –To encourage actions by the customer to modify the electrical usage to meet some goal, usually a reduction in electricity cost

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 While load management can be implemented by customers without any interaction by the utility, usually the term Demand Side Management (DSM) refers to actions taken on the customer’s premises that are actively encouraged or carried out by the utility.

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 May also incorporate generation and distribution management –Operating the optimum mix of generators  Improving fuel efficiency by shifting generators on and off line to keep generator loads at optimums –Maintaining a high power factor  Incorporating compensators to keep generation power factor high –Managing the distribution system optimally  Substation management  Power routing management

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Does DSM Differ from Energy Conservation? DSM strives to improve the efficiency of energy use without any reduction in the services that the energy provides Conservation includes energy efficiency but also adds reducing energy use through the reduction of non- essential services

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 How can a Utility Make More Money by Selling Less Electricity?

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Tariff is too Low Government forces the utility to sell electricity below actual cost –Often residential rates are substantially below the real cost of service and are subsidised by higher commercial and government customers rates.  residential DSM allows the utility to keep more of the revenue from commercial and government customers

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Marginal Costs Higher than Average Costs For each kW of new capacity needed the per kWh generation cost is higher than current costs –Slow down rate of demand growth to limit the need for higher cost new capacity

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Generation Capacity Barely Adequate Improving the efficiency of customer energy use may keep the peak load within existing capacity and avoid or at least put off new investment in generation

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Inadequate Capacity Forces DSM Rolling blackouts –the ultimate DSM measure is turning off the power to the customer –Rolling blackouts possibly can be avoided through other DSM measures  Small rural hydro based utility in Bhutan could not meet demand until all incandescent lights were changed to CFLs.

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Load Levelling The more constant the system load, the more efficient the system can be. High peaks and/or deep valleys in the daily load curve usually cause increased losses and higher costs to the utility –DSM applied specifically to loads that cause the peaks/valleys can help level the load over the day

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Increasing/Shifting Demand DSM is not just applied to lowering demand, it also can be used to increase or shift the timing of demand either globally, seasonally or at particular times of the day –During the wet season in a country with diesel+hydro, energy costs are lower so increased demand at that time will increase utility net income –Shifting electric water heating to late at night may improve generation efficiency –Ice making/fish freezing can be shifted to times when loads are too low to allow efficient generation

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Providing Services Associated with DSM Renting customers energy efficiency equipment (e.g. solar water heaters) and charging a fee equivalent to the non-fuel cost of generating the kWh saved by the equipment Joint venture with a gas company to shift customers from electric cooking to gas Joint venture with a local engineering firm to provide ESCO type services to industrial, government and commercial users –Determine equipment needs, provide finance and maintenance for a fee that covers costs plus the non-fuel cost of generating the kWh saved

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Technical assistance services –Energy audits to determine where energy use can be reduced without reducing services –Advice/assistance in specifying and locating equipment that can provide higher efficiency –Joint ventures/cooperative agreements with local engineering firms to provide technical advice for energy efficiency improvements in commercial and industrial facilities –Training and information programmes  Workshops for hotel, office building and government building managers  Public information programmes through local media, events, public meetings and school activities

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Selection of DSM Technologies Technologies that have the greatest potential for overall energy saving Technologies that are cost effective (payback in less than 10 years) Technologies that can be installed and maintained locally

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Financial Analysis of Energy Alternatives Typically used to compare the “before” and the “after” financial results of implementing DSM. –Financial Rate of Return (FRR)  The effective interest rate received for the investment through energy savings  Often required by financiers but actually not always a good objective measure of DSM effectiveness –Payback period  The amount of time needed before the savings pay for the investment  Good mainly to eliminate clearly poor options and to provide an easily understandable measure of effectiveness.

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Understanding Life Cycle Costing Time value of money –Through investing money, more money can be made over time. This gives today’s money increased value over time. –This value can be stated as an “annual interest rate”, the percentage of increase in money value each year

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Interest Calculation Period = amount of time the investment is increasing value due to interest (day, month, year, etc) Interest rate is the % growth for each period (6% per year,.5% per month, etc.). If no period is stated, a year is assumed. So $5000 invested at 6% for 1 year will increase in value $5000 X.06 = $300

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Simple Interest Calculations are made as though each year had no effect on other years. This is equivalent to spending the interest as soon as it comes in. Year 1: $5000 X.06 = $300 ($5300 total) Year 2: $5000 X.06 = $300 ($5600 total) Year 3: $5000 X.06 = $300 ($5900 total) Year 4: $5000 X.06 = $300 ($6200 total)

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Present Value (PV) The present value of a future payment is equal to the amount of interest bearing money needed to be invested today in an interest bearing account in order to exactly pay off that future payment when it occurs

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Present Value example: If we need to make a payment of $6356.12 four years from now and we can get 6% interest compounded daily for money invested today, then the Present Value (PV) of the $6356.12 payment to be made 4 years from now will be $5000

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Inflation and Escalation Inflation is the increase in overall cost of operations over time –Essentially due to the decrease in the value of a country’s currency over time relative to goods and services Escalation is the increase in cost of a specific commodity over time (e.g. fuel) –Due to inflation plus other factors such as a depleting resource, market demand, etc.

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Discount Rate The time value of the money invested today to pay off the stream of payments. –Typically the inflation rate (or escalation rate if known) minus the rate of interest for low risk investment (e.g. government bonds)  For Present Value calculation purposes the discount rate for utility investments can reasonably be assumed to be 6%

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Formula for Present Value To calculate the Present Value of a future payment use the formula: PV = Future Payment/(1+discount rate) N Where N = the number of compounding periods used in the calculation and the discount rate is the interest rate for one compounding period So the present value of a future payment 4 years from now of $6356.12 with a discount rate of 6% compounded daily will be: PV= $6356.12 / (1+.06/365) 1460 = $5000

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Present Value of a stream of payments For a long series of payments (such as needed in figuring life cycle cost) you figure the Present Value of each payment and then add them all together

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Example of CFL vs Incandescent bulb 60 Watt incandescent lamp used 4 hours a day used about 88 kWh per year. If the kWh rate is $0.34 (about the current cost of diesel generation) then that is $30 per year in electricity cost. Life about 1 year ( 1460 hours) and costs about $1.50 15 Watt CFL uses about 25 kWh per year costing $8.50 in electricity but provides about the same level of lighting. Life is about 5 years (7300 hours) and costs about $7.50

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Present Value of CFL = $43.29 Present Value of Incandescent = $133.07 So this means that over a 5 year period, the real savings of the CFL bulb in today’s money will be about: $133.07 - $43.29 = $89.78

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Payback Period The amount of time it takes to recover the added investment for energy efficiency from energy savings –True payback period considers the time value of money –Simple payback period ignores the time cost of money  Easy for the layman to understand  Reasonable for actions that have fast payback such as solar water heating  Simply divide the added cost for energy efficiency by the annual savings in energy

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e8 / PPA DSM Workshop Fiji Islands November 2-6, 2009 Simple Payback Example: –Solar water heater costs $2000 to install and $25 per year average maintenance cost. 15 year life expectancy –Electric water costs $200 to install and has an average annual cost of operation of $350. 10 year life expectancy –Simple payback time = (2000-200)/(350-25) = 5.54 years